As a major step into the Asian telecoms market, UAE’s Etisalat will take over management of the state-owned Pakistan Telecommunication Company (PTCL) next month, with the conclusion of a troubled privatisation deal.
The Abu Dhabi-based state telecoms provider purchased a 26% stake in Pakistan’s largest telecoms company last month for $2.6bn. The deal had been delayed for almost two months when Etisalat failed to make payment on time in October, but the deal was salvaged when the Pakistani government agreed to accept $1.24bn as the second instalment, with nine more interest-free payments made in equal parts every six months. The initial payment of $260m was made on time in June 2005.
The new arrangement was approved by Pakistan’s Cabinet Committee on Privatisation, which is chaired by Prime Minister Shaukat Aziz, on January 6.
“The meeting also approved a plan to offload up to 25% of class A shares in PTCL through competitive building over the next five years,” one official told the Khaleej Times. Etisalat will also have the option to acquire those shares.
The Pakistani government, which has $36.7bn of debt, was insistent that the deal go through, rather than organising a new one with unsuccessful bidders China Mobile Telecommunications Corporation and Singapore Telecommunications.
The deal was part of an overall strategy to settle overseas debt and divest assets. The sale also pushed up the index on the Karachi Stock Exchange by 18 points on January 17. PTCL shares were the second highest traded for the day, with the company’s stock price rising from Rs66.85 per share to Rs68.05.
The purchase was in line with Etisalat’s overall goal of expansion into international markets, with Pakistan seen as a major potential growth market for the UAE company.
Penetration rates amongst Pakistan’s 160m people are only around 10%, while back home in the UAE, the penetration rate was 80% by May 2005. There are also plans in the UAE to award a full-service licence to a mixed public/private venture in 2006, heightening domestic competition.
These factors have encouraged Etisalat to pursue markets further afield. It currently holds a 1% stake in Qatar’s Qtel and a 4.6% stake in Sudatel, Sudan’s incumbent telecoms operator. That market is severely underserved, with a 2.8% penetration rate.
Etisalat also holds a 34% stake in Zanzibar Telecom (Zantel) and a mobile service provider licence in Tanzania and one in Saudi Arabia, which it bought for $3.45bn in a hotly contested tender.
Etisalat’s overseas operations are run by its wholly owned subsidiary, Etisalat International.
The company is also involved in big developments closer to home. Last June, Etisalat, the Iraqi Telecommunications and Post Company (ITPC) and the Saudi Telecom Company (STC) signed a construction and maintenance agreement for a FOG2 submarine cable – and have begun the groundwork. This will be the first fibre optic submarine cable to land in Iraq, and will provide improved quality, speed and capacity for internet, data, voice and other broadband applications via connectivity to the Gulf and the wider world.
“We are extremely pleased to be a key participant in this cable system,” said Mohammed Hassan Omran, chairman and CEO of Etisalat. “We are sure that Iraq and all other countries will benefit from this link.”
Iraq, plagued by violence and power outages, badly needs infrastructure to facilitate communications for businesses and government services.
The system, which is expected to be operational by the end of 2006, will first link Fujairah, on the UAE’s eastern coast, Saudi Arabia, and Umm Qasr in Basra Province, Iraq with about 1500 km of cable. Other Gulf states will be able to link up in the future if they wish, and the cable could become as much as 2200-km long. The terabit FOG2 cable is the second generation of Fibre Optic Gulf (FOG) cables, the originals equipped with only 20 fibre pairs and 80 GBPS.
The actual construction of the project is now being tendered.
With an already very high domestic penetration rate and market liberalisation just around the corner, Etisalat is expanding into many underserved markets across the developing world – and these can only benefit from the company’s capital and expertise.
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